What are Creditor's Rights Against the Individual?

Creditors' Legal Remedies to Help Collect Debts before a person files bankruptcy

When a debtor fails to pay a debt, the creditor or the person or business to which the debt is owed, has several available remedies to help collect the money. These methods include nonjudicial self-help remedies and remedies that involve the courts. Self-help remedies include simply contacting the debtor directly and demanding payment. If informal attempts fail, the creditor may transfer the debtor's account to a debt-collection business, usually called a collection agency.

Creditors may also repossess or foreclose on goods pledged as collateral for secured debts if debtors default on loan payments without notice. The creditor can take back the property, sell it and apply the proceeds to pay off the debt. If the sale price is not enough to cover the full amount owed, the debtor may still be liable for the remainder. Typical types of secured debts that may be collected via repossession include:

  • Motor-vehicle loans . When a person purchases a car on credit, the lender puts a lien on the car, which allows the lender to repossess the car if the borrower fails to make payments on time.
  • Store purchases . When consumers charge something that they purchase at a department store, the store may retain a security interest in the item purchased based on the agreement that the consumer signed when he or she first opened the account.
  • Finance company loans . When a borrower obtains a loan from a finance company and is asked to list things that he or she owns, it is possible that the finance company will obtain a security interest in the items listed, depending on the contract.

Foreclosure, like repossession, involves the taking back of property that is secured by a loan, but foreclosures generally involve real property, such as a house or cabin. Foreclosures generally involve the court. Three other common creditors' remedies that will probably involve the court are replevin (a court action to get personal property) garnishment and attachment, which like repossession involve taking property, usually with the help of the court.

BEWARE: Often a bank can take money out of a bank account if the debtor has a credit card account at that bank and falls behind on the payment.

Important Limits on Creditors' Rights Help Protect Debtors

  1. Contact a debtor at work if it is known that the employer bans collection calls while on the job; contact debtors before 8:00 a.m. or after 9:00 p.m. or at another inconvenient time or place; or make phone contact without identifying himself or herself.
  2. Threaten or use violence against the debtor or another person or use obscene or profane language.
  3. Publish a debtor's name on a "blacklist."
  4. Lie about the debt, the collector's identity, the amount owed, the consequences for the debtor or send documents that resemble court papers.